Roth IRA Conversion with Distributions Calculator

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In 1997, the Roth IRA was introduced. This new type of IRA allowed for all gains (or growth) to be distributed completely tax-free provided certain requirements are met. Since then, people with incomes under $100,000 have had the option to convert all or a portion of their existing traditional IRAs to Roth IRAs. Starting in 2010, all IRA owners, regardless of income level, are eligible to convert their traditional IRA to a Roth. The conversion requires payment of income taxes on the amount converted. In this is payable with your income tax return for the year of conversion.

Is this a good option for you? A conversion has both advantages and disadvantages that should be carefully considered before you make a decision. This calculator estimates the change in total net-worth, at retirement, if you convert your traditional IRA into a Roth IRA.

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Roth IRA Conversion with Distributions Calculator Definitions

Calculation notes: **2024_RMD_CALCULATION_NOTE**
IRA owner's name: Owner's name to appear on the printable report.
IRA owner's birthdate: The account owner's birthdate. The tool uses this to calculate your age for minimum distribution requirements.
IRA owner's age at retirement: Age you wish to retire. The calculator will begin using your retirement rate of return at this age. It will also produce summary results for account values at retirement.
IRA owner's age at death: This is the final year of future projections. It is assumed that any remaining funds would be distributed at that time. The hypothetical illustration of stretching the account balance through beneficiary distributions is beyond the scope of this calculator.
Total of all Traditional IRA balances: The current balance of all of your Traditional IRAs, SEP IRAs and rollover IRAs. If you are not converting all of your IRAs we use this balance to calculate the percentage of partial conversion that was made as non-deductible contributions.
Non-deductible contributions: The amounts, if any, contributed to your Traditional IRAs, SEP IRAs and rollover IRAs made with after-tax contributions. It is important to note that you may not "cherry pick" funds that are either after-tax or pre-tax to convert. If you are not converting all of your IRAs or the entire amount in your employer-sponsored plan, you must convert a prorated amount of the pre-tax (deductible) and after-tax (nondeductible) balance. All of your IRAs are added together and treated as one for this purpose.
Amount to convert: Amount to convert from a traditional IRA account to a Roth IRA. The tool assumes that you are paying any taxes owed with funds that you have available outside of the account you are converting. If you are under 59½, the IRS treats any money not directly rolled over to the Roth IRA as an early withdrawal – even if that money is used to pay the tax bill caused by the conversion and, except in the case of a rollover from a governmental 457(b) plan, the funds will be subject to a federal tax penalty unless an exception applies.
Rate of return before retirement: This is the annual rate of return you expect from IRA before you retire. The actual rate of return is largely dependent on the types of investments you select. The Standard & Poor's 500® (S&P 500®) for the 10 years ending December 31^st 2023, had an annual compounded rate of return of 15.2%, including reinvestment of dividends. From January 1, 1970 to December 31^st 2023, the average annual compounded rate of return for the S&P 500®, including reinvestment of dividends, was approximately 10.9% (source: www.spglobal.com). Since 1970, the highest 12-month return was 61% (June 1982 through June 1983). The lowest 12-month return was -43% (March 2008 to March 2009). Savings accounts at a financial institution may pay as little as 0.25% or less but carry significantly lower risk of loss of principal balances.
It is important to remember that these scenarios are hypothetical and that future rates of return can't be predicted with certainty and that investments that pay higher rates of return are generally subject to higher risk and volatility. The actual rate of return on investments can vary widely over time, especially for long-term investments. This includes the potential loss of principal on your investment. It is not possible to invest directly in an index and the compounded rate of return noted above does not reflect sales charges and other fees that investment funds and/or investment companies may charge.
Rate of return during retirement: This is the annual rate of return you expect from your IRA during retirement. The actual rate of return is largely dependent on the types of investments you select. The Standard & Poor's 500® (S&P 500®) for the 10 years ending December 31^st 2023, had an annual compounded rate of return of 15.2%, including reinvestment of dividends. From January 1, 1970 to December 31^st 2023, the average annual compounded rate of return for the S&P 500®, including reinvestment of dividends, was approximately 10.9% (source: www.spglobal.com). Since 1970, the highest 12-month return was 61% (June 1982 through June 1983). The lowest 12-month return was -43% (March 2008 to March 2009). Savings accounts at a financial institution may pay as little as 0.25% or less but carry significantly lower risk of loss of principal balances.
It is important to remember that these scenarios are hypothetical and that future rates of return can't be predicted with certainty and that investments that pay higher rates of return are generally subject to higher risk and volatility. The actual rate of return on investments can vary widely over time, especially for long-term investments. This includes the potential loss of principal on your investment. It is not possible to invest directly in an index and the compounded rate of return noted above does not reflect sales charges and other fees that investment funds and/or investment companies may charge.
Is beneficiary a spouse?: Check this box if your only beneficiary is your spouse. The IRS distribution rules use a uniform lifetime table to calculate all life expectancies for determining a minimum distribution. The only exception to this rule is if the only beneficiary is a spouse and he or she is more than 10 years younger than the account owner. In this situation, the joint life expectancy table is used. The joint life expectancy table normally produces lower required minimum distributions.
Beneficiary's birthdate: This is only required if your beneficiary is your spouse.
Beneficiary's name: Beneficiary's name to appear on the printable report.
Planned annual IRA withdrawal: Annual after-tax amount to withdraw from IRA. For Roth IRA the after-tax amount is the same as the actual withdrawal. For the traditional IRA the after-tax amount will be calculated using the entered retirement tax rate. If the gross traditional IRA withdrawal (before tax) amount is less than any Required Minimum Distribution (RMD) for the year, the RMD will be used.
The planned annual withdrawals last through the owner's lifetime.
Age to begin withdrawals: Age to begin the withdrawals. Default age will be the age of retirement, but any age greater than retirement age is acceptable. This allows for time to pass before any funds are withdrawn if other resources are available that can be drawn down first. If an age entered is less than 59 1/2, the tool assumes a 10% penalty on the withdrawal.
Annual Increase of withdrawal amount: Allows you to automatically increase the amount taken out each year, once withdrawals begin. This can help plan for potential cost of living increases.
Roth conversion subject to income tax: This is the total Roth conversion subject to income tax. This is the entire amount you are converting, unless you have made contributions to an IRA that did not qualify for a tax deduction. If you are not converting all of your IRA balances, the portion is not subject to tax is prorated for the amount that is being converted.
Pay your conversion tax bill from your IRA?: Check this box to use your IRA to pay your conversion tax bill. This assumes that when you convert your traditional IRA you keep enough of the proceeds, and pay any taxes or penalty on the amount, to pay any additional income taxes due to the Roth conversion. For the purposes of this analysis, the tool assumes that you do not receive any interest on the withheld amount.
Calculate possible distribution penalty?: Check this box to calculate a possible penalty if you are paying your conversion tax bill from your IRA. There is a 10% penalty on distributions from a traditional IRA before you are 59 1/2. The penalty would apply to any amount you use to pay for income taxes on the conversion. There would also be a 10% penalty on any amounts that you use to pay the penalty. There is no penalty if you are over 59 1/2.
Filing status: Choose your filing status. The ‘Filing Status’ table summarizes the five possible filing status choices. Your filing status determines the income levels for your Federal tax bracket. It is also important for calculating your standard deduction. Your marital status as of the last day of the year determines your filing status.**TAXTABLE_CURRENT_DEFINITION**
Calculate marginal tax rate?: Check this box to use your estimated adjusted gross income (AGI) and filing status to estimate your marginal tax rate for the current year.
Estimated adjusted gross income (AGI): Enter your estimated adjusted gross income (AGI) if you would like the calculator to estimate your marginal tax rate that should be applied to the taxable portion of your Roth conversion.
Marginal tax rate: Expected marginal income tax rate for year of conversion.
Tax estimate: Estimated additional income taxes due from converting your traditional IRA to a Roth. All taxes would be calculated as part of your annual income tax filing. Depending on the amount of income tax owed, your specific situation may require additional quarterly tax payments or additional tax withholding throughout the year to avoid possible underpayment penalties on your return.
Tax rate at retirement: Expected marginal income tax rate at retirement.
Investment tax rate: Expected marginal tax rate for investments. This calculator assumes that you invest the amount that you would have had to pay in taxes in a taxable investment account. The investment tax rate is used for calculating the annual return on these taxable investments.